In July 2024, a defective software update issued by a widely used cybersecurity vendor led to significant disruption across multiple sectors. Airlines experienced check-in delays, some financial services encountered limited system availability, and healthcare providers postponed non-urgent procedures.
The estimated financial impact ran into billions of pounds.
The incident was not caused by a cyber-attack or infrastructure failure. It resulted from a software update containing code errors that propagated rapidly due to the scale of adoption. Thousands of organisations relied on the same technology component, meaning a single issue had far-reaching consequences.
This illustrates supply chain concentration risk. When critical systems depend on a small number of shared providers, operational resilience becomes vulnerable to events outside an organisation’s direct control. In many cases, the extent of this exposure only becomes visible during disruption.
Supply chain concentration risk extends beyond traditional vendor lock-in.
Vendor lock in typically refers to dependency on a single supplier for a specific service. While inconvenient, it can often be managed with contractual and commercial controls. Concentration risk, however, emerges when multiple critical systems depend on the same underlying providers, platforms, or components.
An organisation may appear diversified at the application level while relying on shared infrastructure, identity services, development frameworks, or open-source libraries beneath the surface. When those shared elements experience disruption, multiple systems can be affected simultaneously.
This risk is compounded when alternatives cannot be implemented quickly, data portability is limited, or exit strategies are incomplete. In such scenarios, continuity depends heavily on the ongoing viability and performance of third parties.
Several structural factors have intensified concentration risk across technology supply chains.
Public cloud infrastructure is dominated by a small number of hyperscale providers. While these platforms offer resilience, scalability, and efficiency, their widespread adoption introduces systemic dependencies that organisations must understand and manage.
The growth of software-as-a-service has further shifted control away from internal environments. Core business functions — from finance and HR to customer management and collaboration — are increasingly delivered through third-party platforms, often hosted on the same underlying infrastructure.
Geopolitical developments and regulatory change add further complexity. Data sovereignty requirements, cross-border transfer restrictions, and jurisdictional risk now influence where systems can operate and how quickly providers can respond to disruption.
During periods of rapid digital transformation, dependency mapping and vendor risk assessment have not always kept pace with adoption. As a result, concentration risk may be embedded across technology estates without being formally acknowledged.
Regulators have placed growing emphasis on concentration risk as part of broader operational resilience frameworks.
In the UK, the Bank of England, Financial Conduct Authority, and Prudential Regulation Authority have highlighted the importance of understanding dependencies on third parties, including cloud and technology providers. Guidance increasingly expects firms to map not only direct suppliers, but also the critical subcontractors and infrastructure providers that support them.
Regulatory expectations extend beyond identification. Firms are required to demonstrate credible plans for disruption scenarios, including the failure or withdrawal of key suppliers. It includes understanding how services could be substituted, transitioned, or maintained under stress.
Similar themes appear in guidance from European and US regulators, reflecting a global shift towards deeper scrutiny of third-party and concentration risk.
Effective management begins with visibility, such as:
Organisations should document dependencies across their technology landscape, including shared infrastructure, identity services, monitoring tools, and development components. This extends beyond Tier 1 suppliers to include critical third parties further down the supply chain.
Dependency mapping tools and analytics platforms can help identify clusters where multiple systems rely on the same provider or component, highlighting areas of heightened risk.
Financial stability, ownership structure, and long-term viability should be reviewed regularly for critical suppliers. This information contributes to a broader assessment of whether reliance remains proportionate to the risk posed.
Scenario analysis should consider realistic disruption events, such as supplier insolvency, service withdrawal, or prolonged outage. Exit plans should define how data would be retrieved, how services would be replaced, and what interim measures would apply.
Testing these plans under controlled conditions provides assurance that they are workable in practice.
Reducing concentration risk does not require eliminating dependencies, but it does require intentional design and governance.
Where feasible, distributing workloads across multiple providers can reduce the impact of a single failure. This approach introduces additional complexity, but it also improves resilience for systems that support important business services.
Systems designed around open standards, and interoperable interfaces are easier to migrate and adapt. Avoiding unnecessary reliance on proprietary formats or tooling improves flexibility if change becomes necessary.
Exit strategies should be documented, reviewed, and periodically validated. This includes understanding data formats, contractual rights, transition timescales, and operational constraints. Clear exit planning transforms uncertainty into a controlled process.
Software escrow provides an additional safeguard for applications that are critical to business operations.
Software escrow arrangements ensure that source code, documentation, and relevant build materials are securely deposited and can be released under predefined conditions, such as supplier insolvency or sustained failure to support the software.
When combined with software escrow verification, these arrangements provide confidence that deposited materials are complete, current, and capable of being built and deployed if required. Verification confirms that escrow deposits are not merely symbolic, but usable in practice.
Software escrow does not replace broader resilience measures, but it plays an important role in managing concentration risk for bespoke or mission-critical systems.
Past incidents have demonstrated how concentration can amplify disruption.
Outages affecting shared content delivery services have temporarily rendered multiple high-profile websites unavailable. Security breaches have had wider consequences where organisations relied on a single platform for a critical control function.
These events underline the importance of understanding how shared dependencies can increase impact, even when individual suppliers are performing as expected under normal conditions.
Concentration risk evolves over time as suppliers change, technologies consolidate, and new services are adopted.
Responsibility for managing concentration risk should be clearly assigned, often within third-party risk management or operational resilience functions. Regular review at an appropriate governance forum ensures continued visibility and accountability.
Metrics such as the number of critical services dependent on each provider, the proportion of infrastructure hosted on shared platforms, and the time required to execute exit plans help translate risk into measurable insight.
New supplier onboarding and contract renewals should trigger concentration assessments automatically. Integrating these checks into procurement and architecture processes helps ensure risk is addressed before dependencies become entrenched.
Supply chain concentration risk is an inherent feature of modern technology ecosystems. Complete avoidance is neither realistic nor desirable.
Resilience comes from understanding dependencies in detail, making deliberate design choices, and maintaining credible contingency plans. Diversification, portability, governance, and contractual safeguards each contribute to a balanced risk posture.
Software escrow supports this framework by providing assurance where reliance on third-party software cannot be easily reduced. When combined with robust planning and oversight, it helps organisations move from exposure to informed control.
Disruption is not a question of if, but when. Organisations that recognise and manage concentration risk proactively will be better positioned to maintain continuity when that moment arrives.
